Legg Mason - Growth & Inflation, Not Rates

Executive Summary
ƒ- Swings in global growth and inflation are likely more im- portant to the economic outlook than whether the federal funds rate is zero or just near zero.

- Fixed-income spread sectors have come under meaningful pressure. Just as the U.S. growth picture is brightening, the global outlook has dimmed.

ƒ- Favoring extra duration and a yield curve flattening ap- proach has been prescient.

ƒ- The U.S. inflation picture has stabilized, but the broad collapse of commodity prices exacerbates an already downward trend in global inflation.

- The question for investors is how to benefit from contin- ued U.S. growth while providing some protection against weaker global inflation and growth. One of the areas of particular interest is in this environment investment-grade long maturity corporate bonds.

ƒ- Investment-grade credit valuations relative to fundamentals are so compelling that we believe they are likely to hold up well even in the event of a more challenged economic environment.